Description of the Seven Business Principles

Quick Summary: Vision and mission statements need to be augmented by operational tenants embraced by all.

Abstract:

Vision and Mission statements are very important in helping a company establish its unique identity. There are, however, some basic principles that are applicable to all organizations of any size or maturity that simply must be followed for the organization to achieve and maintain long-term success. Although vision and mission statements may hang on the wall and be thought of from time to time, seven fundamental business principles of behaviors must be followed every day by every person in every activity.

Virtually all public, private, and non-profit organizations have well-thought-out vision and mission statements that capture the essence of who they are and what they want to accomplish. Entrepreneurs, just starting their businesses, and younger, smaller companies may not have these succinct statements written down and shared with others, but they exist nonetheless, even if only in the entrepreneur’s mind. Obviously, visions and missions will vary significantly from one organization to another and for any one company, may evolve or totally change over time. As valuable as these two statements are, there is a third element that is even more important that needs to be considered and addressed by every organization. It is the company’s principles of operation. These principles are the fundamental, foundational building blocks that will define who the company is and will be the basis of their culture.

The employees create culture through their actions which mimic the actions of the company’s leaders. Culture cannot be dictated and is not expressed with grandiose statements. Instead, it is ever-present but invisible; its impacts are readily discernible by the actions of all individuals within the organization. Over time, the company’s culture becomes apparent with all of the external individuals and entities that interact with them, and, through word of mouth, is a major component of the company’s reputation. It takes a long time to positively change the culture of an organization and the outside world’s perception of it. However, one significant negative event can profoundly impact a company’s culture and its reputation. Reputations are, therefore, fragile and can easily be tarnished unintentionally. As one example, think of the shock that spread around the globe when it was revealed that Volkswagen, a highly respected auto maker, had purposely been deceiving the world on their diesel engine emission performance. It will take many years for them to regain marketplace confidence, if it ever happens at all.

The notion that practice makes permanent, so practicing constantly and perfectly is key to establishing a positive internal environment that will help mold the company’s culture. The seven principles described in this volume will form the basis for achieving and maintaining a positive culture. The relentless pursuit of these principles by everyone in the organization should guide all internal and external activities. As they are practiced every day, they will become permanent.

Over the years, I have settled on seven fundamental principles which, I believe, apply to every organization from the single entrepreneur to the largest Fortune 100 companies. All seven principles are important, but compliance to them is essential in the rank order as listed below. These principles should guide the thoughts and actions of every employee, every day, and be applied to every situation.

This article lists the seven principles and only provides a brief description of each. Subsequent chapters in this volume more fully describe them and provide specific, related concepts. Upon casual review, the principles seem obvious and, in fact, they are. However, during the hustle and bustle of day-to-day corporate life, when we move from one crisis or tactical issue to another, that seemingly need immediate attention, it is easy to forget or dismiss them. For employees, it is easy to think of these principles as belonging to management who is responsible for them. This is not the case. Each employee needs to embrace these principles and use them as guidelines as they perform every task and make every decision. In all cases, it may not be possible to follow each principle perfectly. The realities of business may cause stretching or bending some of them at times. However, in no case should anyone’s actions be in conflict with any of them. It may sound harsh, but compliance to these principles should be viewed as a condition of future employment.

Principle One: Stay in Business

This principle is so obvious it is often questioned as even being considered. The quick response by many is “of course”. However, as discussed in author Arie De Geus’s book “The Living Company”, the average life expectancy of a large, multi-national company (~ Fortune 500) is forty to fifty years. Many experts believe that the forty- to fifty-year life expectancy is dropping fast.

In the U.S., less than half of all new companies still exist after five years of operation and, by the tenth year, 80% have failed. These startling statistics indicate that company extinction rather than company survival is the norm. Boards, management, and all employees need to focus on this first principle to buck the odds and keep their institutions alive and well. It is hard to imagine that employees, management, or investors set a goal to go out of business. To the contrary, everyone associated with the company plans for and counts on its long-term success. Unfortunately, the odds are not in their favor. Positive action is required to buck the trend and survive and hopefully flourish for everyone’s benefit. The time to think about this issue is now. Often companies wait until they are at death’s door to make the hard decisions to stay alive. Unfortunately, more often than not, it is too late.

Principle Two: Treat All Individuals with Dignity and Respect

Most companies often comment that their employees are their most important asset. This is certainly true and most companies have formal programs to guard against unlawful and unethical practices. They work hard to provide and maintain a healthy work environment with dignity and respect acting as cornerstones of these programs. Companies that do not rigorously follow those practices will simply not succeed. However, focusing on internal employees and what the law requires is not enough. This same principle must be applied to all external individuals including customers, partners, contractors, and even competitors. Consistent behavior toward all individuals determines the fundamental character of a company. In most cases, when dignity and respect issues arise within an organization, it is not due to willful misconduct. Instead, small, seemingly innocent comments or actions occur which in hindsight were nothing more than unconscious events that could have easily been avoided. No matter how unintentional, the results can still be devastating with long-term impacts. An alarming trend has recently emerged in many public settings. It is “selective civility”. It occurs when individuals and institutions treat others that agree with them with dignity and respect while treating those that might disagree with them with utter disdain. This dual standard of behaviors should not be tolerated in any setting by anyone.

Principle Three: Provide an Acceptable Return to All Investors

At first glance, this principle may seem to apply to the company’s financial investors. It does, in fact, apply to them, but financial investors only rank fourth in priority. Three other groups all invest heavily in the company and their investments are far more important than those of the company’s financial backers. This statement may shock Wall Street and other financial experts who commonly believe that a company’s number one goal should be to increase shareholder value with all other goals subservient to it. The reality is that the shareholder value can only be consistently increased by first addressing the investment needs of the other three categories first.

The most important group of investors is the company’s employees who are investing their time. Time is a commodity that cannot be recouped. Every hour of every day that every employee spends working at the company is an increment of time that cannot be spent somewhere else or recaptured. There are no time “do overs”; what is spent is spent.

The second group of investors are the company’s business partners who allocate resources to the company and help them serve the third group of investors; their customers. Business partners always have choices and have to decide when, where, and how they will allocate their resources. By choosing to work with a specific company, they are essentially choosing not to work with others. They are “doubling down” by choosing to work with one company as opposed to someone else. If the partnership is not successful, like employees, they cannot recoup time and may not be able to recoup any of their other investments.

Customers are the third group of investors. Simply making that statement without understanding the first two investor categories may question this apparent lack of customer focus. Customers are, of course, vital to a company’s survival. However, the company’s employees and business partners must take higher priority. Customers invest in the company by putting trust in them and purchasing their goods and services. In many cases, customers have customers. If the purchased goods or services do not meet their needs or the needs of their customers, they will suffer the consequences.

Only if the three previously identified groups of investors are satisfied will financial investors be able to receive acceptable returns. Obviously, the four investor categories are all interrelated and a circular argument can be made regarding which category comes first, second, third, and fourth. In the final analysis, it does not matter. Think of the four categories as legs of a table; all four must be available, solid, and work together to maintain stability and meet Principle One but not at the expense of violating this principle.

Principle Four: Continuously Delight Each Customer

Large companies can maintain customers if they keep them satisfied. That level of satisfaction works most of the time and is based on the natural resistance to change that can be thought of as the power of incumbency. The axiom of “good enough is good enough” historically has provided customer stability. It boils down to the fact that it is hard to change. A new model may be attractive but is it attractive enough to cause a prospect to change? However, when a customer does decide to make a change, they may opt to explore all alternatives. Customer loyalty appears to be slipping in many business segments. Perhaps the slippage is caused the lack of customer service responsiveness exhibited by many companies with their highly automated, rigid, impersonal systems. Or it may be caused by the rapid obsolesce of products, or more intense advertising, or poor quality, or greater competition. In any event, previously satisfied and loyal customers can quickly abandon ship if a disruptive alternative comes along that better meets their perceived needs. Focusing on delighting, not merely satisfying, each customer has become the new table stakes for continued business success. The same mindset needs to be applied to internal customers, colleagues, and partners as well as billing-paying customers. Everyone has choices of where and when to spend their money and energy. Building a bond to increase the resilience of the relationship is now essential.

Principle Five: Demonstrate Sustained, Measurable Improvements in All Aspects of the Business

Metrics are the cornerstone of quality improvement. Measuring where you are and have been are critical in projecting where you will be. Once known, the path to achieve those goals quite often becomes clear and obvious. The metric concept is applicable to all facets of the business and needs to become part of the culture of the company that is embraced by everyone. It is easy to fall back on financial measurements and rely on them to gauge the success of the business. Unfortunately, most financial metrics are rearward looking that document what has happened. Improvements are made by looking forward, setting goals, and developing methods to achieve those goals, and then measuring progress along the way. Every person and process in the entire company should be able to be objectively measured. Those measurements, in turn, should form the basis for planning and implementing improvements. The task is never complete. It must be thought of as a continuous task, similar to breathing; to sustain the life of the organization.

Principle Six: Promote and Maintain a Positive Response to Change

Change is constant, and the across-the-board watchword needs to be Adapt or Die. Virtually every aspect of our lives and the business climate is in a constant state of flux. New does not necessarily mean better, but must be objectively considered and embraced, no matter how painful the short-term transition may appear to be. It is easy to dismiss changing events or new opportunities quickly. Paraphrasing the 17th Century physicist Isaac Newton “Bodies at rest tend to stay at rest, while bodies in motion tend to stay in motion”; changing direction is difficult. Each employee must be constantly on the lookout for new or better ways to do things. Management must encourage the questioning of past practices and ban the phrase “because we have always done it that way”. Many companies have failed to follow Principle One, Stay in Business, by not carefully considering the consequences of not embracing change. Today, new companies with disruptive new approaches to old problems are upsetting some of the largest companies on the planet. Many past highly successful companies have fallen prey to their own success by not objectively examining alternatives and consciously, or unconsciously, penalizing individuals that question the status-quo.

Principle Seven: Be a Responsible and Active Corporate Citizen

This principle goes well beyond following the letter of the law which is covered by Principle One. Being responsible to the community and, therefore, our society is incumbent upon each person and each business entity. Accepting and acting on the fact that we are not alone or operating on an isolated island is critical to maintaining what we have and setting the stage for an ever-elevating future for all of us. Supporting community activities on a corporate level provides a cross-level, cross-organization bond that extends well beyond the eight to five workplace. Short of company-wide activities, supporting individuals involved in community activities can also be effective in developing “pay it forward” attitudes that spill over into the workplace. Company and individual character does not start and stop based on a time clock; it becomes part of who we are.

The brief descriptions listed above barely scratch the surface of the meaning and implications of each of these principles. It is easy to take all of them at face value and nod in agreement. Digging deeper, however, may reveal some not so obvious considerations and techniques to allow these principles to have more meaning and impact. If the importance of considering and embracing these principles is now not obvious, step back and think about some failing or failed companies in any business segment. Without too much thought or research, the root cause of their failure can be easily mapped to one or two of these principles. Your organization is not immune and can travel down the same path if conscious care is not taken.